New Heights for Bella Vista

20 years after coming to light, the first house is being built at problem-plagued Bella Vista development

The lost cause of the Rogue Valley's real estate bust is emerging from hibernation in east Medford.

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By GREG STILES

MailTribune.com

By GREG STILES

Posted Mar. 17, 2013 at 12:01 AM

By GREG STILES

Posted Mar. 17, 2013 at 12:01 AM

A time line of Bella Vista Heights

1993 — Medford enters into an agreement with W.L. Moore Construction Co. to build an extension of East McAndrews Road from Foothill Road to Hillcrest Road, allowing development of the site

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A time line of Bella Vista Heights

1993 — Medford enters into an agreement with W.L. Moore Construction Co. to build an extension of East McAndrews Road from Foothill Road to Hillcrest Road, allowing development of the site

1996 — Council approves plans after several designs and modifications are engineered

1996 — Owners of nearby Hillcrest Orchard, who want sound walls and barriers for protection, agree to settle rather than appeal the project to the Land Use Board of Appeals

2000 — The city and Moore negotiate with all the property owners for rights of way and all but Art Dubs agree

2001 — McAndrews Road extension construction begins

2002 — Property owner Art Dubs drops his civil suit contesting the amount he was awarded in condemnation proceedings. He agrees to dismiss the case after reaching an agreement with the city about installing utility lines on his property

2008 — Excelsior Development defaults on $7.9 million in loans from Bank of the Cascades

2008 — Bank of the Cascades forecloses on Bella Vista Heights

2009 — Bank of the Cascades places $8 million price tag on the development

2012 — Cedar Coast Development acquires Bella Vista Heights from Bank of the Cascades for $2.2 million

2013 — Pahlisch Homes of Bend begins building the first eight houses in Bella Vista Heights

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The lost cause of the Rogue Valley's real estate bust is emerging from hibernation in east Medford.

A decade ago, Bella Vista Heights was poised to become a premier residential development. But despite having real estate's foremost element — location — on its side, the 38.5-acre development straddling East McAndrews Road languished. First it was tied up in a series of legal battles. Then, when the way was cleared to build, the economy keeled over and the project went dormant.

More than four years after the development went into foreclosure, however, Bella Vista is rising again.

Bend construction firm Pahlisch Homes began excavation work in February, and the first of eight homes is taking shape along Camina Drive.

Cedar Coast Properties of Vancouver, British Columbia, acquired the development, finished infrastructure and all, for $2.2 million last fall. New owner Ender Ilkay wasted no time in putting his building partner to work and expects to begin selling finished houses in June.

"We did all kinds of testing and analysis of the site to make sure," Ilkay said. "We want to know if it is in the right part of town and desirable. Half of the time I end up walking away, because the place doesn't pass our due diligence. We looked very carefully and the prospects are great. I know a lot of money was invested by previous parties, and that's always unfortunate."

Still, Ilkay nearly missed out on his chance.

"The property was under contract with another party when we became aware of it," Ilkay said. "I said, 'OK, oh well,' and we were ready to move on. Then we heard the sale fell through and we turned our focus to it again."

That meant gauging market attitudes and demands.

"I don't know as much as local people know about a development," he said. "So we have to educate ourselves and find out about the skeletons."

Bella Vista had its share. The most recent was a 50-yard gouge on a west-facing slope where the hillside slipped 6 to 10 feet after a water main broke a year ago, unleashing more than 150,000 gallons.

"We like to go in with our eyes wide open," Ilkay said.

The gouge has been repaired, and not far away, a small army of excavators, cement workers and framers is vigorously rearranging the fallow land.

The owner of Cedar Coast Properties, which operates developments in four western states, began checking into Bella Vista more than two years ago, near the bottom of the residential real estate market bust. At that point, the price tag on the development was $2.9 million, less than a quarter of the $13.84 million Excelsior Development Co., led by Jeff Chamberlain, paid Arthur Dubs in January 2006.

"Art was in love with that property," said Medford real estate agent Stacey Boals. "For years, when the signs went up, there were tons of Realtors trying to get the listings."

Bella Vista Heights was poised to make a big splash in the east Medford hills overlooking RoxyAnn Winery's vineyards, sporting a waterfall that quickly became a prom photo backdrop and building lots ranging from two-tenths to two-thirds of an acre.

"Jeff spared no expense, and it was a big gamble," said Boals, one of the project's investors who took a hit.

Presale reservations were rolling in, and a "Street of Dreams" was just around the corner. So were the real estate bust and Great Recession.

By December 2008, Bend-based lender Bank of the Cascades had taken possession after Excelsior was unable to fulfill its $7.9 million loan obligation on the property and posted an $8 million price tag on the development.

At that price, the lots averaged $75,000. When Cedar Coast Properties closed the deal late last year, the average lot price was less than $21,000.

"When we finally pulled the trigger on acquisitions in 2011, we had gone through a period of 'Not yet, not yet,' " Ilkay said. "We got lucky with our timing. We knew we were closer to the bottom than the top, but you never know until you look into the rearview mirror."

The Bend market took off a few months before the Rogue Valley started seeing solid signs of a turnaround. If nothing else, the dearth of existing inventory has spurred new building.

"I would like to think the market is in full recovery," Ilkay said. "Obviously, it will be a very long time before the crazy exuberance we saw back in 2006 — which wasn't sustainable — and I hope it doesn't go to that extreme. You never want to go too far in either direction."

While the "Street of Dreams" will never pop out of the heights, the long-promised housing construction has begun — four years after its previous developers exited, the better part of a decade after its progenitors hoped to begin building, and more than 20 years since Dubs envisioned the development.

Dubs was unavailable to discuss the project because of failing health.

"This is a reminder of how hard things were, have been, and for some, still are," said Dan Pahlisch, sales manager for the family firm. "It's also a fresh start for everybody right now."

The initial houses range between 1,700 and 3,000 square feet, with "the largest possible garages," Pahlisch said. "What has changed in recent years is that most residential square footage has come down, while garage size is going up, because people would rather play."

The first model home on the southwest corner of Camina Drive and Veneto Circle is a three-bedroom, three-bathroom, 2,600-square-foot, single-level "Bainbridge-style" residence. (See pictures at www.mailtribune.com/bainbridge.)

The first of the new houses won't be completed before June, and the cost won't be set for at least another month.

"Labor and pricing in general have remained relatively flat for nearly half a decade as a result of the recession," Pahlisch said. "As we're clawing our way out, so are our trade partners. Lumber is priced now at levels it hasn't been since the boom. That's a hurdle I wish we didn't have to get over."

Once the model house is completed, a grand opening will follow and the waterfall will be turned back on. Coldwell Banker Pro West Real Estate will handle sales.

"We know baby boomers are still one of the largest buyer segments," Pahlisch said. "A lot has changed since the boom and every builder has learned from it."

Over the next 18 months, Pahlisch expects to build 16 to 20 houses, putting 30 to 40 people to work per housing start. Lender Community Financial Corp., an affiliate of Banner Bank, is funding up to eight starts at a time.

"We know that in this first round we don't have to worry about another cataclysmic event," Pahlisch said. "(Cedar Coast) has no loans or lien on the property, and Ender wants what is best for the property. If times get hard again, we'll just stop building. We won't be at a point where people are losing their homes or see us dumping homes at basement prices."

At the first sign of construction, interest soared, said Clason Whitney, principal broker at Coldwell Banker.

"Pahlisch was smart enough to recognize the opportunity and the way the valley is going now and jump on it," Whitney said. "As soon as the first foundation was poured, we started getting calls from agents and even prospective buyers. It just took one house to get things going."

The handful of lots atop Veneto Circle that once commanded as much as $400,000 apiece, and collectively as much as the entire 100-plus subdivision, won't go on the market any time soon, Ilkay said.

"It's safe to say we won't be releasing those crown lots any time soon," he said. "The prime lots are the absolute best lots there. We decided to start with good quality lots, not the stuff you need big, big dollars for."

Bella Vista Heights likely will end up with 104 or 105 lots, Ilkay said.

Given the ill-fated history of Bella Vista, the Pahlisch family briefly thought about changing the name.

"That lasted for about five minutes," Dan Pahlisch said. "There were all those negative things, but Bella Vista is what it is. The original developers put a good name on it, and we want to finish it out strong."

Reach reporter Greg Stiles at 541-776-4463 or business@mailtribune.com. Follow him on Twitter @GregMTBusiness, and read his blog at www.mailtribune.com/Economic Edge.